Oil Is Setting Up For A Short

It had been no secret that I was bearish on Crude Oil for a good part of this year. However, when my target got hit a few weeks ago in the overnight session, I tweeted out that I became neutral (after covering my short $USO positions). However, I am starting to see a potential bearish pattern setting itself up that might offer a great risk/reward trade to the downside.

Chart Outlook

As you can see, oil is off its lows but not by that much. It is forming what I call a “bear ascending wedge flag” pattern. Basically, its a bear flag, but in the form of the ascending wedge. As long as it stays below $90/barrel, there is no reason to be bullish (technically). As for the RSI, it is in a symmetrical triangle pattern. A breakdown of this (and the 50 midpoint level) will signal a shift in momentum to the downside. If we do in fact get over the $90 mark, I will be watching the descending trend-line.

$CL_F WTI Light Sweet Crude Oil Daily Chart



The Trade

Below is the chart of the ETF for oil, $USO. I will be using this ETF to make a trade and NOT futures. However, I will not put on the trade until AFTER this Friday (do not want any new positions going into the Jobs Number). Basically, the ultimate best spot for a short would be if USO slowly traded up in this ascending wedge into not only the trendline resistance but also the (would-be) resistance at $35.25. And just from eyeballing it, it would seem as though the 50 day SMA would also be acting as resistance at that point as well.

With this many things in my favor, I would easily short a 2/3rds position at that spot with a stop above $36.50 and add the final 1/3rd on the way down if it works for me. My first target to cover some would be near the lows. But all this can easily change with Friday’s Jobs Number, so keep that in mind. I Will update/tweet if/when I do take a position. And If you are wondering why I prefer to short $USO over going long $SCO, it is basically because I want the contango to work for me, and not against.

$USO – United States Oil ETF Daily Chart

















Tags: $USO, $CL_F, $OIL, $UCO, $SCO, $DTO

The information in this blog post represents my own opinions and does not contain a recommendation for any particular security or investment. I or my affiliates may hold positions or other interests in securities mentioned in the Blog, please see my Disclaimer page for my full disclaimer.

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